What is a Rent to Own Contract?
I know that many of you are wondering what exactly is a rent to own contract? So let me explain it to you and then share how our system is far superior to the traditional ways in which rent to own deals are done.
A rent to own contract is a contract to sell a piece of real estate where actual transfer of the title takes place at a later date when the buyer can be in a position to obtain a mortgage. The seller and the buyer come together to negotiate the price of the home, the amount of payment, the interest rate, the amount of down payment and how each of those apply to the purchase price.
Some sellers allow a portion of the monthly payment to apply to the principle amount of the loan. The payment should cover all the taxes and insurance payments on the property. This is to insure the seller has the money to pay the taxes to avoid any tax liens. Traditionally all maintenance issues are paid for by the buyer. However all these items are negotiable during the contract process.
The term of the rent to own period is typically between 1-5 years. During which time the buyer is to secure a traditional mortgage that will pay the balance of the purchase price that remains after the rent to own period is over.
If the buyer is unable to secure a mortgage or produce the remaining balance, the rent to own contract is terminated and the seller is free to sell the property to another person or keep the buyer in place with a traditional rental agreement, or enter into another rent to own agreement.
Any down payment is normally non refundable due to the seller willing to take the home off the market during the rent to own period. When entering into a rent to own contract, make sure you use a standard contract form from a local board of realtors, or a real estate attorney's office.
Always have a professional review the document. The investment is always well worth it. The worst thing you can do is to enter into a contract where you do not know or fully understand the details. I hope this gives you a better understanding of the rent to own process.